CEE CENTRE EXECUTIVE EDUCATION

Project Management,
Stock Control &
Investment Appraisal
Business Decision Making
Rashida Yvonne Campbell

Page 1
Contents

ASSIGNMENT TASK 3

ANSWER Q1 5

STRATEGIC INFORMATION 6

SUMMARY OF STRATEGIC INFORMATION 7

TACTICAL INFORMATION 8

SUMMARY OF TACTICAL INFORMATION 9

OPERATIONAL INFORMATION 10

SUMMARY OF OPERATIONAL INFORMATION 12

CONCLUSION OF STRATEGIC, TACTICAL AND OPERATIONAL INFORMATION 13

ANSWER Q2 14

TWO EXAMPLES OF STRATEGIC INFORMATION 14

TWO EXAMPLES OF TACTICAL INFORMATION 14

ANSWER Q 6 15

ANSWER Q8 16

ANSWER Q 9 17

ANSWER Q 10 18
 Assignment Task

Answer 6 questions from 10 provided.

1. Distinguish between strategic, tactical and operational information.

2. Give two examples of strategic, tactical and operational information

relevant to an organization operating in the manufacturing sector.

6. Placing an order for an item of stock costs $340. The stock costs
$60 a unit, annual storage costs are 10% of purchase price. Annual
demand is 900,000 units. What is the economic order quantity?

8. The following activities comprise a project to agree a price for some

land to be bought for development
Activity Preceded by Duration Days
A: Get survey done ----------------------- 5
B: Draw up plans ----------------------- 9
C: Estimate cost of B 2
building work
D: Get tenders for the A 11
site preparation
E: Negotiate Price C,D 5

8a. What are the paths during the network?

8b. What is the critical path and duration?

9. A company is wondering whether to spend $36,000 on an item of

equipment, in order to obtain cash profits as follows:
 Year $
A 12,000
B 16,000
C 10,000
D 2,000

The company requires a return of 10% per annum. Use the Net
Present Value (NPV) method to assess whether the project is viable.

10. The Net Present Value of an investment at 25% is $90,000 and at

30% is $20,000. The internal rate of return of this investment (to
the nearest whole number) is:
A: 17%
B: 20%
C: 22%
 Answer Q1
Non-profit organisations and business organisations depend on
information. They require information for many purposes and reasons.
The reasons may vary according to the organisation, below are common
general purposes for gathering and processing information:
 Planning
 Control
 Decision-making and problem-solving
 Co-ordinating
 Organising
 Commanding
 Performance measurements
 Recording transactions, numerical data from various departments
 Competitor movements
 Government legislation/political movements
 Customers
A vast amount of information can be related to all of the above
categories. Information is a valuable tool and resource for organisations,
it maybe confidential, crucial and or critical to the success of the
organisation. Information maybe gathered from the past, present or
anticipated future i.e. forecasting as economists and governments do. It
maybe gathered formally and/or informally, externally and/or internally, it
may consist of primary or secondary data, it maybe quantitative or
qualitative etc.
Therefore information gathering, processing and dissemination are vital
functions of any organisation. Information about customer requirements
gives the organisation purpose and objectives. Information about
objectives enables managers to direct and co-ordinate the activities of
others. However not all of the information that a company holds is
available to all its employees, for example: there is no need for a
manager responsible for production line output having access to the
information that it is required for the CEO of the company. For
organisational purposes information is split into three main types of
information divisions:
 Strategic Information

Strategic decisions, choices and direction of the company are long-term

objectives. These are the responsibility of the top management. It is
strategic information that is essential for planning objectives for the
organisation and to assess if the objectives are being met through the
organisational activities and practices.
The strategic information includes:
 total profitability, the profitability of sub-business units, and various
segments of the business
 future market forecasts and predictions
 the level of retained earnings
 availability of raising capital (new funds) perhaps for new ventures
or re-investments purposes
 overall cash needs of the organisation
 overall resources requirements such as human power
 availability and capital equipment requirements
This information is essential for top senior managers to decide the long-
term planning strategies, such strategies like growth of the organisation
and helps them to base decisions of growth from its information gathering
to decide upon mergers, takeovers, alliances etc. They match the
organisational competences and capabilities to the external environment
and make adjustments as necessary. The information maybe informal and
may not be possible to quantify. This level of information it is usually a
summary or total value. At this level the management receive information
mainly from the executive summaries and collect project, sales, revenue,
purchases, and departmental information this way (internal information).
The information at this level is usually formal. Strategic management
information is also reliant on external sources of data either quantitative
or qualitative. They monitor competitors, stakeholders, political, legal,
social, economic, technological and environmental movements and
indicators that assist them toward their decisions, planning, financing and
business choices for the overall direction and success of the company.
Summary of Strategic Information:
It is information required by top senior management that are responsible
for long-term planning, growth and sustainability of the organisation.

Strategic Information for Top

Senior Managers Purpose for
long-term planning &
Decision making

MIDDLE MANAGERS

LINE MANAGERS
information is provided to the
management at higher levels

The diagram demonstrates that internal information is provided to the

management at higher levels. However decisions and choices are then
communicated from Top level managers downwards.
Strategic Information is:
 Information is collected from both internal and external sources
 All the information is summarised at a high level
 The information is relevant for the long-term rather than the day to
day functioning
 The information required is regarding the organisation as a whole
 Information maybe prepared on an ‘ad hoc’ basis
 The information maybe both quantitative and/or qualitative
 Long-term information is more risky as the future may have
unexpected changes that were not cater for.
 Tactical Information

Tactical Information is used to decide how the resources of the business

should be employed and monitored and how they are being deployed and
dispersed.
Examples include:
 Information about business productivity e.g. units produced per
employee; staff turnover
 Profit and cash flow forecasts in the short term
 Pricing information from the market
 Budget control and/or variance analysis reports
 Employee levels i.e. head counts per team, department, divisions,
projects and units etc
 Employee turnover levels
 Short-term purchasing requirements
 Profit results of particular departments

Tactical information is essential for the middle management of the

organisation. The professional middle managers include sales &
marketing, manufacturing, Finance & Accounting, Human Resources,
procurement & logistics, production, purchasing managers, research &
development etc. Each of these middle-managers would require tactical
information for various reasons. Below are some of the explanations for
the requirements of middle-managers tactical information needs:

Marketing Manager would require tactical information regarding:

 Advertising techniques and analysis of their impact.
 Customer preference surveys
 Correlation of prices and sales
 Sales force deployment and targets
 Exploring alternate marketing channels
 Timing of special sales campaigns

A Financial Manager would require tactical information regarding:

 Variations between budget and expenses
 Large outstanding payments/Receipts
 Credit and payment status
 Cost increases and pricing
 Impact of taxation on pricing
Basically tactical information allows middle managers to monitor and
control, to check if operations and activities are working according to
plan. Some professional middle-managers are involved in the decision-
making process and the tactical information that is useful for them will be
provided as a guide to the decision that they need to conduct, but this is
more on a short or medium term level.

Summary of Tactical Information

It is information required for professional middle-managers that are
responsible for short to medium term planning and decision-making of the
organisation.

Strategic
Infor-
mation Top
Senior
Managers

Tactical Information to monitor & control

resources
Professional Middle Managers for short-
medium term planning and decision-making

LINE MANAGERS

Tactical information is:

 Usually generated internally, but there maybe some external
sources incorporated
 Decision regarding the information are summarised at a lower level
 The information is regarding the short-medium term
 It is concerned with activities and/or departments
 Information is prepared on a routine and regular basis
 The information is quantifiable and produces quantitative measures
 Operational Information

Operational information is used to make sure that specific operational

tasks are carried out as planned/intended (i.e. things are done properly).
For example, a production manager will want information about the
extent and results of quality control checks that are being carried out in
the manufacturing process. This information is gathered by line managers
of the organisation and is essential for monitoring, identifying areas that
need attention. Operational information is needed to plan program
activities such as the use of time, people, and money, and which is used
to assess how well the planning program is functioning.
Examples include:

 Listing of debtors and creditors

 Payroll details

 Raw materials requirements and usage

 Listings of customer complaints

 Machine output statistics

 Delivery Schedules

The actual requirements and usage for operational information is an

endless list, above are just some of the examples. Operational
information is essential for lower level line managers and supervisors as a
form of control and monitoring, recording, storing, reporting etc. This
information assists operational managers to track the organisations day-
to-day activities. The decisions based on this information are small-scale
and can be programmed. It is a formal and quantitative measure. This
information is updated quickly in some cases hourly, daily, weekly etc.

An example of this would be the workers wages relating to day-rate

labour would include the hours worked each day, week, the rate of pay
per hour, details of over-time, deductions, and the amount of time a
worker spent on each individual job. This all provides assistance to the
line managers when analysing the workers wages.

Middle managers would require the operational information provided by

lower level managers for example:

A Marketing Manager would require the lower level manager to

communicate the following operational information:
 Sales analysis by regions, customer class, sales person.
 Sales target versus achievement.
 Market share and trends.
 Seasonal variations.
 Effect of model changes.
 Performance of sales outlets
 Costs of campaigns and benefit

A Financial Manager would require the lower level manager to

communicate the following operational information:
 Periodic financial report
 Budget status to all functional managers
 Tax returns
 Share transfers
 Profit and loss account
 Payments and receipts
 Payroll, provident fund accounts
Summary of Operational Information
It is information required by lower level managers and supervisors that
are responsible for the day to day operations and running of the
organisation. The information is for their records but is also
communicated through to higher level managers and in some cases the
senior management levels.

STRATEGIC
INFORMATION
Top Senior
Managers

TACTICAL INFORMATION
Professional Middle-
Managers

OPERATIONAL INFORMATION Line

managers and supervisors for the
day to day running of the
organisation

Operational information is:

 Usually gathered from internal sources
 It is detailed information and specific step by step such as the
processing of raw data
 It is for the immediate term
 The information is divided into task-specific recording and
monitoring
 The information is prepared frequently
 It is mainly numerical and quantitative
 Conclusion of Strategic, Tactical and Operational
Information

The diagram below shows the relevant information sections according to

the typical organisation.

Organisations require information for recording transactions, measuring

performance, making decisions, planning and controlling. The information
requirements will be influenced by the sector they operate in. Information
is vital and may be strategic, tactical or operational.
 Answer Q2

Give two examples of strategic, tactical and operational information

relevant to an organization operating in the manufacturing sector.
Large manufacturers are usually plc companies and will therefore have
shareholders. The information that is produced at a strategic level is vital
information from a shareholder’s perspective. Shareholders would want to
know information such as revenue, capital investments, and sustainability
and growth options of the organisation.

Two Examples of Strategic information in the manufacturing sector:

1. Communication of corporate objectives to the management of the
business expressed in term or profit targets and measures of wealth
such as earnings per share value.
2. Communicating information on strategic plans for the long term
future of the organisation such as acquisitions, mergers,
partnerships etc, to reduce risk, increase revenue, improve product
differentiation to meet demands.

Two Examples of Tactical information in the manufacturing sector:

1. Using variance analysis and stock turnover information a sales
budget provided by middle managers my be required to be analysed
by the product team managers of the same level and/or higher level
managers
2. A manufacturing plan for the next twelve months, as at this level
the decisions and information is either short-medium term. The
information may include performance measures of machines that
have been decided that a replacement is required.
Two Examples of Operational information in the manufacturing sector:
1. A record or analysis of the recorded debts showing all customers
whose deliveries have been put on hold pending settlement of
overdue balances.
2. A list of all purchase orders outstanding with the financial evaluation
of total purchase order commitment.

Answer Q 6
Placing an order for an item of stock costs $340. The stock costs $60 a
unit, annual storage costs are 10% of purchase price. Annual demand is
900,000 units. What is the economic order quantity? The Economic Order
Quantity ‘EOQ’ is the order for an item of stock which will minimise costs.
The formula is:
EOQ = √2CoD
Ch
D= Demand
Co= Costs
Ch= holding cost
Q= re-order quantity

Therefore:
Co= $340
D= 900,000
Ch= $60 x 10% = $6

EOQ = √ 2 x $340 x 900,000 = √621000000

$6 6

= √102000000 = 10099.5 = 10,010 units

900,000 = 89.91 (90) orders placed each year, so the stock cycle
10,010

52weeks / 90 orders = 0.577 (giving a stock cycle of every 6 days)

The point of the EOQ is to minimise costs as holding stock costs money and lack
of insufficient re-ordering can also cost the firm, if re-ordering is delayed.
 Answer Q8
The following activities comprise a project to agree a price for some land to be
bought for development
Activity Preceded by Duration Days
A: Get survey done ----------------------- 5
B: Draw up plans ----------------------- 9
C: Estimate cost of building B 2
work
D: Get tenders for the site A 11
preparation
E: Negotiate Price C,D 5

8a. What are the paths during the network?

8b. What is the critical path and duration?

A D
E

B C

8a) A, D, E = 5days + 11days + 5days = 21 days

B, C, E = 9days + 2days + 5days = 16 days

8b) Critical Path is A,D,E. The critical path is identified by which events
take the longest time, the critical activities are those activities which must
be started on time otherwise the total project will be increased.
 Answer Q 9
A company is wondering whether to spend $36,000 on an item of equipment, in
order to obtain cash profits as follows:

Year $
A 12,000
B 16,000
C 10,000
D 2,000

The company requires a return of 10% per annum. Use the Net Present Value
(NPV) method to assess whether the project is viable.

The following discounted rates in the table below to answer question 9

has been calculated assuming that the money earns 10% per annum, the
calculations are as follows:

a. PV $1 at year 1 is $1 x 1/1.10 = 0.909

b. PV $1 at year 2 is $1 x 1/(1.10)² = 0.826
c. PV $1 at year 3 is $1 x 1/(1.10)³ = 0.751
d. PV $1 at year 4 is $1 x 1/(1.10)⁴ = 0.683
Year Cash flow Discount factor Present Value
10%
0 (36,000) 1.00 ($36,000)
A 12,000 0.909 10908
B 16,000 0.826 13216
C 10,000 0.751 7510
D 2,000 0.683 1366
Total
$33,000
$36,000−
$3,000-
NET PRESENT VALUE $3,000-

The Net Present Value is negative; therefore the following conclusions can
be made:
1. It is cheaper to invest elsewhere at 10% than to invest in the
project.
2. The project would earn a return of less than 10%. Since 10% of
$36,000 is $3,600.
3. The project is not viable since the PV of the costs is greater than the
PV of the benefits.
 Answer Q 10

The Net Present Value of an investment at 25% is $90,000 and at 30% are
$20,000. The internal rate of return of this investment (to the nearest whole
number) is:
A: 17%
B: 20%
C: 22%
a = one interest rate at 25%
b = other interest rate at 30%
A= NPV at rate a = $90,000
B= NPV at rate b = $20,000

IRR +{ $90,000 x (30-25) }%

$90,000 – (-20,000)

25% + 90,000 x 5 = 4.09%

110,000

= 25% + 4.09% = 29.09%

None of the above IRR for this investment rates are correct. The project is
NOT viable.

The IRR is an alternative method to NPV. It determines the rate of

interest at which NPV is 0. The internal rate of return is therefore the rate
of return on an investment. Thus if a company expects a minimum of
return of 25% the project is viable if the IRR is more than 25%.